Efforts to combat global warming could suffer a setback next year when new rules reduce the number of electric cars that qualify for a federal tax credit.
The credits, of up to $7,500 per vehicle, have helped make electric cars more affordable, bringing the cost of some models to less than $30,000. Next year, for the first time, dealers will be able to give the credit to buyers when they buy a car, instead of telling them to claim it on their tax returns.
But qualifying for the subsidy will be more difficult on Jan. 1 because of Biden administration rules aimed at encouraging automakers to make vehicles and parts in North America, bypassing China. Most automakers are still years away from breaking their dependence on China for batteries and essential materials such as refined lithium.
Tighter regulations, stemming from the Inflation Reduction Act, pose another impediment to electric vehicles. Sales of these types of cars and trucks are already growing less rapidly than a year ago due to high interest rates and drivers' anxiety about finding charging stations.
Electric vehicles remain the fastest-growing segment of the auto industry, and Americans have already purchased more than a million this year. Sales will rise another 32 percent in 2024, according to BloombergNEF, compared with 47 percent in 2023. But Ford Motor, General Motors and Tesla have slowed investment as the pace of growth has cooled.
He list The number of all-electric vehicles that qualify for tax credits was already limited. Under rules that went into effect this year, the credit was available only for cars made in North America.
To collect the full credit, automakers must also meet quotas on the quantity of their battery components and certain raw materials that come from the United States or trading allies. Tesla, General Motors, Ford, Volkswagen, Rivian and Nissan are the only companies offering electric cars that qualify for at least a partial credit. Some plug-in hybrid cars from Audi, BMW, Chrysler, Jeep and Lincoln can also benefit from tax breaks.
The new rules that go into effect on January 1 add another set of restrictions, disqualifying vehicles that contain components made in China or manufactured elsewhere by a company under the control of the Chinese government.
“If it was already confusing for consumers, it gets even more confusing,” said Kevin Roberts, director of industry insights and analytics at CarGurus, an online marketplace.
Tesla, which accounts for half of all electric vehicles sold in the United States, warned on its website that the cheaper Model 3 sedan and a long-range version will no longer qualify after December 31. in China. The existing credits reduced the price of the base Model 3 to around $30,000, on par with similarly equipped gasoline cars such as the Toyota Camry or Honda Accord.
The stricter rules will also disqualify Ford's Mustang Mach-E, which has been eligible for half the credit and was the fourth most popular electric vehicle in the United States this year. Ford is still figuring out whether the F-150 Lighting, an electric pickup truck, will be eligible, a spokesperson said.
The rules are complex and could still be changed by administration officials, causing confusion among industry executives. In the worst case, only a few vehicles will qualify.
Volkswagen said it is “cautiously optimistic” that its ID.4 electric sport utility vehicle, made in Chattanooga, Tennessee, will continue to get the credit.
General Motors said it is evaluating whether its electric lineup, which includes the Chevrolet Bolt and an electric version of the Silverado pickup truck, will qualify. Nissan, whose electric Leaf is eligible for half of the $7,500 credit, did not respond to a request for comment. Rivian, whose electric trucks and SUVs qualified, also did not respond.
There is another way drivers can benefit from the credit. Under an exception intended for companies with vehicle fleets, the Inflation Reduction Law allows dealers to apply the subsidy to leased vehicles and pass it on to customers. That problem has helped Hyundai and other foreign automakers remain competitive even though they don't produce electric vehicles or batteries in the United States.
More than 40 percent of Hyundai's electric vehicle sales are leases, a spokesman said, up from just 5 percent before new restrictions came into effect this year. The same provision of the law has allowed people who rent cars made abroad by Mercedes-Benz, BMW, Volvo and Polestar to receive the credit indirectly.
But leasing is not a panacea. Many people prefer to own their cars, and foreign automakers are angry at being excluded from the subsidy available to buyers. Credit for electric vehicles “is overly complex and unfortunately creates confusion among customers and dealers,” Volvo Cars said in a statement.
But lawmakers who wrote and passed the Inflation Reduction Act said they wrote it to force automakers to realign their supply chains. That is happening, but it will take some time for the changes to bear fruit.
The list of eligible vehicles could grow over the course of 2024 as automakers ramp up U.S. production to qualify for the credits and other subsidies.
Korean automaker Kia hopes to begin producing the EV9, a seven-passenger electric sport utility vehicle, at a Georgia factory next year. Those domestically assembled vehicles should be eligible for half the credit, or $3,750, a Kia spokesperson said.
Stellantis, owner of Chrysler, Dodge, Ram and Jeep, plans to introduce six mass-market electric vehicles in 2024, including versions of the Dodge Charger, Jeep Wagoneer and the Ram pickup truck. The company has not said whether the vehicles will qualify for credits.
Some hybrids, which have internal combustion engines and electric motors, will also qualify if they meet fueling requirements and have a battery with a capacity of at least seven kilowatt-hours.
The Chrysler Pacifica Hybrid will most likely remain eligible for a $7,500 credit, a company spokesperson said, while buyers of the Jeep Grand Cherokee 4xe and Jeep Wrangler 4xe hybrids are expected to be eligible for up to $3,750.
Market forces are putting downward pressure on electric vehicle prices, a trend that is expected to continue as automakers ramp up production. The average list price of an electric vehicle fell to $63,000 in November from $68,000 a year earlier, according to CarGurus. The average list price for a vehicle with an internal combustion engine was $48,000, the same as the previous year.
Federal subsidies and loans for battery factories and electric car plants are also helping to lower prices. At some point over the next few years, analysts expect electric vehicles to become less expensive than internal combustion models, even without tax credits.
“The long-term trend will be to lower prices,” said Roberts of CarGurus. “You'll see more conventional vehicles.”
